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Monday, 31 December 2012

Seller Financing, another option to gain ownership

...when the Seller provides the Buyer a mortgage—can benefit both the Home Buyers and Home Sellers.

Seller Financing can be a useful tool in this tight credit market. It allows Sellers to move a home faster, often getting a sizable return on their investment. Buyers often benefit from less stringent qualifying and down payment requirements for a property that might otherwise be out of reach.

There's a greater chance of finding Sellers willing to take on the role of financier in today’s slower market, but they still represent only a small fraction of all Sellers. This is because a Seller Financed deal is not without its legal, financial, and logistical hurdles. By taking the right precautions and getting professional help of a qualified, licensed Mortgage Broker specializing in Seller Financed Agreements For Sale, however, Buyers and Sellers can reduce the inherent risks.

The Basics of Seller Financing

In Seller Financing, the Seller takes on the role of the Lender. Similar to a Lease-to-Own, or a Rent-to-Own, but with Seller Financing, you are paying a Principle + Interest Payment instead of a rental payment with a portion going to the deposit. The Seller extends enough credit to the Buyer for the purchase price of the home, minus any down payment (cash-to-mortgage). Both the Buyer and Seller sign an Offer to Purchase, a Financing Schedule, and an Addendum indicating the terms of the loan.Typically the interest will be at higher premium than what is currently offered at the Banks or Credit Unions, but not always.
These loans are often short term—typically 1 to 3 years. The general theory is that within a few years, the property will have gained enough in value or the Buyers' financial situation will have improved by the help of the same Mortgage Broker enough that they can refinance with a traditional lender. From the Seller's standpoint, the shorter time period is also practical—Sellers don't have the life expectancy of a mortgage lending institution or the patience to wait around for 25 to 35 years until the loan is paid off. In addition, Sellers don't want to be exposed to the risks of extending credit longer than necessary.

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